Google’s app pricing makes EU ruling even more pointless

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Image credit: rvlsoft / Shutterstock.com

Google’s price list for its apps minus Chrome and Search is an indication that the economics of the EU remedy are completely unworkable, ensuring that everything will continue as before.

The price list for what handset makers will have to pay to Google to be able to install Google apps on their devices without Search or Chrome has been obtained by The Verge. This is an option Google is putting forward in order to satisfy the demands of the EU, which believes that Google has abused its dominant position to stifle competition.

Google is using screen pixel density to separate devices into different categories (I presume as a proxy for device price) and the price varies from country to country. UK, Sweden, Germany and Norway have the highest prices where a device with above 500ppi (pixels per inch) will cost $40 for Google’s apps, 400ppi – 500ppi: $20 and $10 for a device with less than 400ppi.

I am pretty sure that Google has varied the pricing from country to country because of the different levels of advertising that it generates from Android devices in those countries. Consequently, it comes as no surprise that the UK is in the most expensive category as it is known to be one of the most advanced mobile markets in Europe.

I originally estimated that this fee for Europe would be around $25 per unit (see here), indicating that my Android revenue estimates for Google are not too far out from reality. Most devices, even iPhones, are below 500ppi with only Samsung flagships and Google’s Pixel 3xl being above this level.

Consequently, it looks like the price is going to realistically going to be $10 – $20 for most products.

However, even at this price, the impact on Android handset makers will be catastrophic.

If the average phone costs $300, then most Android handset makers who make 2-4% EBIT margin in the best instance, will be making $6 to $12 in EBIT for every device they ship. Consequently, an extra royalty from Google will wipe all of their profitability and put them into loss-making territory.

This is obviously unsustainable – consequently, no handset manufacturer in its right mind will decline to install Google Chrome or Search, thereby ensuring the existing status quo continues despite the EU’s objections.

Furthermore, if they do decline to install Google Chrome and Search, they may also forgo the traffic acquisition cost (TAC) that Google pays to its partners that help drive traffic to its services. This would further negatively impact their already precarious financial position making it even more likely that there will be no takers for this option.

Hence, I think it’s pretty safe to say that despite its intentions, the EU’s remedy is going to be insignificant and everything will continue as it has before. One quarter of bad cash flow is all Google will feel.

This article was originally published at RadioFreeMobile

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